-27-
B. Respondent’s Interpretation of Sections 1.482-1 and
1.482-7, Income Tax Regs., Is Incorrect
Neither party disputes the absence of comparable
transactions in which unrelated parties agree to share the spread
or the grant date value. Nor do the parties dispute the fact
that unrelated parties would not “explicitly” (i.e., within the
written terms of their agreements) share the spread or the grant
date value. The parties, however, disagree about what effect
these facts have on respondent’s authority to make allocations
pursuant to section 1.482-1, Income Tax Regs.
Pursuant to section 1.482-1(b)(1), Income Tax Regs., “A
controlled transaction meets the arm’s length standard if the
results of the transaction are consistent with the results that
would have been realized if uncontrolled taxpayers had engaged in
the same transaction under the same circumstances”. Section
1.482-1(b)(1), Income Tax Regs., further states:
because identical transactions can rarely be located,
whether a transaction produces an arm’s length result
generally will be determined by reference to the
results of comparable transactions under comparable
circumstances. [Emphasis added.]
Respondent presented no evidence or testimony establishing
that his determinations are arm’s length. He simply contends
that the “application of the express terms of Treas. Reg. �
1.482-7 itself produces an arm’s-length result,” and that “it is
unnecessary to perform any type of comparability analysis to
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